MUMBAI: Britain’s Tesco announced on Tuesday that it has applied to open supermarkets in India, becoming the first retail giant to try to enter the market since New Delhi removed foreign investment barriers last year.
Tesco, being the world’s third largest retailer has applied to India’s Foreign Investment Promotion Board for permission for an initial $110 million investment in the Tata Group’s retail business Trent Hypermarket Limited.
“Today, we’re making an application to develop a multi-brand retail business in India,” said Trevor Masters, chief executive officer for Tesco’s Asia operations, on the company’s website.
“If it were successful, it could open the way to Tesco investing directly and forming a partnership from our existing relationship with the Tata Group,” Masters said.
The Indian government moved last August to open up its potentially lucrative retail sector to foreign companies to try to boost a sharply slowing economy.
But until now no companies had applied amid concern about some of the tough conditions for entry.
Commerce Minister Anand Sharma welcomed Tesco’s move, which initially proposes establishing stores in the western state of Maharashtra and the southern state of Karnataka, and opening three to five stores every financial year.
“We welcome this development and on our part assure them all support for expedited clearances,” Sharma said in a statement.
“We hope that this will mark a new beginning in transforming India’s retail industry. I am sure that the other global leaders will also look at investing in India.”
P. Phani Sekhar, an analyst with Mumbai’s Angel Broking, said the move would come as a relief to the government more than one year after it opened the sector.
“India needs serious long-term foreign investment,” he said.
Masters stated that Tesco already supplies about 80 percent of the goods in Tata’s 16 Star Bazaar and Star Daily stores in southern and western India after signing an agreement in 2008.
Until the law was relaxed last year, foreign multi-brand retailers had been unable to sell directly to consumers in India.
“If Tesco’s application is successful, the two firms will enter a 50-50 ownership of Trent,” Masters said in a release.
“We believe that our understanding of the Indian market coupled with Tesco’s unparalleled global retail expertise will allow us to leverage the tremendous potential of the market to the benefit of all stakeholders,” Trent said.
Foreign supermarkets can now hold stakes of up to 51 percent in multi-brand retailers, after the government opened the $500 billion sector.
Walmart and France’s Carrefour were among the first retailers to voice interest in setting up shop in India, the world’s second most populous country and home to a fast-growing middle class.
But the supermarkets have sought more clarity on the rules, which say foreign firms must earmark 50 percent of their investment to setting up back-end infrastructure such as warehouses, and also source at least 30 percent of the value of the goods they sell from small-scale local firms.
Walmart in October announced it was ending its retail partnership with Indian firm Bharti, with which it had operated as a wholesaler in the country since 2007.
Analysts say some foreign retailers are waiting until after the general election next year before deciding on investment, with the main opposition Bharatiya Janata Party expected to take power.
